Composition of capital disclosure requirements Rules text

Transcription

1 Basel Committee on Banking Supervision Composition of capital disclosure requirements Rules text June 2012

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3 Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland Fax: and This publication is available on the BIS website ( Bank for International Settlements All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited. ISBN (print) ISBN (online)

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5 Contents Introduction...1 Section 1: Post 1 January 2018 disclosure template...3 Section 2: Reconciliation requirements...3 Section 3: Main features template...6 Section 4: Other disclosure requirements...7 Section 5: Template during the transitional period...7 Composition of capital disclosure requirements i

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7 Composition of capital disclosure requirements Introduction 1. During the financial crisis, many market participants and supervisors attempted to undertake detailed assessments of the capital positions of banks and comparisons of their capital positions on a cross jurisdictional basis. The level of detail of the disclosure and the lack of consistency in the way that it was reported typically made this task difficult and often made it impossible to do with any accuracy. It is often suggested that lack of clarity on the quality of capital contributed to uncertainty during the financial crisis. Furthermore, the interventions carried out by the authorities may have been more effective if capital positions of the banks were more transparent. 2. To ensure that banks back their risk exposures with a high quality capital base, Basel III introduced a set of detailed requirements to raise the quality and consistency of capital in the banking sector. In addition, Basel III established certain high level disclosure requirements to improve transparency of regulatory capital and enhance market discipline and noted that more detailed Pillar 3 disclosure requirements would be forthcoming. 1 This document sets out these detailed requirements. 3. To enable market participants to compare the capital adequacy of banks across jurisdictions it is essential that banks disclose the full list of regulatory capital items and regulatory adjustments. In addition, to improve consistency and ease of use of disclosures relating to the composition of regulatory capital, and to mitigate the risk of inconsistent formats undermining the objective of enhanced disclosure, the Basel Committee has agreed that internationally-active banks across Basel member jurisdictions will be required to publish their capital positions according to common templates. 4. The requirements are set out in the following 5 sections: Section 1: Post 1 January 2018 disclosure template. A common template is established that banks must use to report the breakdown of their regulatory capital when the transition period for the phasing-in of deductions ends on 1 January It is designed to meet the Basel III requirement to disclose all regulatory adjustments, including amounts falling below thresholds for deduction, and thus enhance consistency and comparability in the disclosure of the elements of capital between banks and across jurisdictions. This template may be used in advance of 1 January 2018 in certain circumstances, which are set out in Section 1. Section 2: reconciliation requirements. A 3 step approach for banks to follow is established to ensure that the Basel III requirement to provide a full reconciliation of all regulatory capital elements back to the published financial statements is met in a consistent manner. This approach is not based on a common template because the starting point for reconciliation, the bank s reported balance sheet, will vary between jurisdictions due to the application of different accounting standards. Section 3: main features template. A common template is established that banks must use to meet the Basel III requirement to provide a description of the main features of regulatory capital instruments issued. 1 See paragraphs 91 to 93 of the Basel III rules text, which is available at Composition of capital disclosure requirements 1

8 Section 4: other disclosure requirements. This section sets out what banks must do to meet the Basel III requirement to provide the full terms and conditions of regulatory capital instruments on their websites and the requirement to report the calculation of any ratios involving components of regulatory capital. Section 5: template during the transitional period. This section requires banks to use a modified version of the post 1 January 2018 template in Section 1 during the transitional phase. This template is established to meet the Basel III requirement for banks to disclose the components of capital that are benefiting from the transitional arrangements. Implementation date and frequency of reporting 5. National authorities will give effect to the disclosure requirements set out in this document by no later than 30 June Banks will be required to comply with the disclosure requirements from the date of publication of their first set of financial statements relating to a balance sheet date on or after 30 June 2013 (with the exception of the Post 1 January 2018 template set out in Section 1). Furthermore, except as required in paragraph 7, banks must publish this disclosure with the same frequency as, and concurrent with, the publication of their financial statements, irrespective of whether the financial statements are audited (ie disclosure will typically be quarterly or half yearly). In the case of the main features template (Section 3) and provision of the full terms and conditions of capital instruments (Section 4), banks are required to update these disclosures whenever a new capital instrument is issued and included in capital and whenever there is a redemption, conversion/write-down or other material change in the nature of an existing capital instrument. 6. Under Pillar 3, large banks are required to make certain minimum disclosures with respect to certain defined key capital ratios and elements on a quarterly basis, regardless of the frequency of financial statement publication. 2 The disclosure of key capital ratios/elements for these banks will continue to be required under Basel III. 7. Banks disclosures required by this document must either be included in banks published financial statements or, at a minimum, these statements must provide a direct link to the completed disclosure on their websites or on publicly available regulatory reports. Banks must also make available on their websites, or through publicly available regulatory reports, an archive (for a suitable retention period determined by the relevant national authority) of all templates relating to prior reporting periods. Irrespective of the location of the disclosure (published financial reports, bank websites or publicly available regulatory reports), all disclosures must be in the format required by this document. 2 For the relevant Pillar 3 disclosure requirements see paragraph 818 of the Basel II Framework: International Convergence of Capital Measurement and Capital Standards A Revised Framework Comprehensive Version (June 2006). 2 Composition of capital disclosure requirements

9 Section 1: Post 1 January 2018 disclosure template 8. The common template that the Basel Committee has developed is set out in Annex 1, along with an explanation of its design The template is designed to capture the capital positions of banks after the transition period for the phasing-in of deductions ends on 1 January 2018 and must be used by banks for reporting periods on or after this date. If a jurisdiction permits or requires its banks to apply the full Basel III deductions in advance of 1 January 2018 (ie does not phase-in the deductions or accelerates the phase-in period of deductions), it can permit or require its banks to use the template in Annex 1 as an alternative to the transitional template described in Section 5 from the date of application of at least the full Basel III deductions. In such cases the relevant banks must clearly disclose that they are using this template because they are fully applying the Basel III deductions. Section 2: Reconciliation requirements 10. This section sets out a common approach that banks must follow to comply with the requirement of paragraph 91 of the Basel III rules text, which states that banks should disclose a full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements. This requirement aims to address the problem that at present there is a disconnect in many banks disclosure between the numbers used for the calculation of regulatory capital and the numbers used in the published financial statements. 11. Banks are required to take a 3 step approach to show the link between their balance sheet in their published financial statements and the numbers that are used in the composition of capital disclosure template set out in Section The 3 steps require banks to: Step 1: Disclose the reported balance sheet under the regulatory scope of consolidation. Step 2: Expand the lines of the balance sheet under the regulatory scope of consolidation to display all of the components that are used in the composition of capital disclosure template. Step 3: Map each of the components that are disclosed in Step 2 to the composition of capital disclosure template set out in Section The 3 step approach outlined below is designed to offer the following benefits: The level of disclosure is proportionate, varying with the complexity of the balance sheet of the reporting bank (ie banks are not subject to a fixed template that is designed to fit the most complex banks. A bank can skip a step if there is no further information added by that step). 3 This template is largely based on the template used to collect the Basel III implementation monitoring data: see Composition of capital disclosure requirements 3

10 Market participants and supervisors can trace the origin of the elements of the regulatory capital back to their exact location on the balance sheet under the regulatory scope of consolidation. The approach is flexible enough to be used under any accounting standard: firms are required to map all the components of the regulatory capital disclosure templates back to the balance sheet under the regulatory scope of consolidation, regardless of whether the accounting standards require the source to be reported on the balance sheet. Step 1: Disclose the reported balance sheet under the regulatory scope of consolidation 14. The scope of consolidation for accounting purposes and for regulatory purposes are often different. This factor often explains much of the difference between the numbers used in the calculation of regulatory capital and the numbers used in a bank s published financial statements. Therefore, a key element in any reconciliation involves disclosing how the balance sheet in the published financial statements changes when the regulatory scope of consolidation is applied. Step 1 is illustrated in Annex If the scope of regulatory consolidation and accounting consolidation is identical for a particular banking group, it would not need to undertake Step 1. The banking group could simply state that there is no difference between the regulatory consolidation and the accounting consolidation and move to Step In addition to Step 1, banks are required to disclose the list the legal entities that are included within accounting scope of consolidation but excluded from the regulatory scope of consolidation. This will better enable supervisors and market participants to investigate the risks posed by unconsolidated subsidiaries. Similarly, banks are required to list the legal entities included in the regulatory consolidation that are not included in the accounting scope of consolidation. Finally, if some entities are included in both the regulatory scope of consolidation and accounting scope of consolidation, but the method of consolidation differs between these two scopes, banks are required to list these legal entities separately and explain the differences in the consolidation methods. Regarding each legal entity that is required to be disclosed by this paragraph, banks must also disclose its total balance sheet assets and total balance sheet equity (as stated on the accounting balance sheet of the legal entity) and a description of the principle activities of the entity. Step 2: Expand the lines of the regulatory balance sheet to display all of the components used in the definition of capital disclosure template 17. Many of the elements used in the calculation of regulatory capital cannot be readily identified from the face of the balance sheet. Therefore, banks should expand the rows of the regulatory-scope balance sheet such that all of the components used in the composition of capital disclosure template (described in Section 1) are displayed separately. 18. For example, paid-in share capital may be reported as one line on the balance sheet. However, some elements of this may meet the requirements for inclusion in Common Equity Tier 1 (CET1) and other elements may only meet the requirements for Additional Tier 1 (AT1) or Tier 2 (T2), or may not meet the requirements for inclusion in regulatory capital at all. Therefore, if the bank has some paid-in capital that feeds into the calculation of CET1 and some that feeds into the calculation of AT1, it should expand the paid-in share capital line of the balance sheet in the following way (also illustrated in Annex 2 (step 2)): 4 Composition of capital disclosure requirements

11 Paid-in share capital of which amount eligible for CET1 of which amount eligible for AT1 Ref h i 19. In addition, as illustrated above, each element of the expanded balance sheet must be given a reference number/letter for use in Step As another example, one of the regulatory adjustments is the deduction of intangible assets. While at first it may seem as if this can be taken straight off the face of the balance sheet, there are a number of reasons why this is unlikely to be the case. Firstly, the amount on the balance sheet may combine goodwill, other intangibles and mortgage services rights. MSRs are not to be deducted in full (they are instead subject to the threshold deduction treatment). Secondly, the amount to be deducted is net of any related deferred tax liability. This deferred tax liability will be reported on the liability side of the balance sheet and is likely to be reported in combination with other deferred tax liabilities that have no relation to goodwill or intangibles. Therefore, the bank should expand the balance sheet in the following way: Goodwill and intangible assets of which goodwill of which other intangibles (excluding MSRs) of which MSRs Ref a b c Current and deferred tax liabilities Of which DTLs related to goodwill Of which DTLs related to other intangible assets (excluding MSRs) d e Of which DTLs related to MSRs f 21. It is important to note that banks will only need to expand elements of the balance sheet to the extent that this is necessary to reach the components that are used in the composition of capital disclosure template. So, for example, if all of the paid-in capital of the bank met the requirements to be included in CET1, the bank would not need to expand this line. The level of disclosure is proportionate, varying with the complexity of the bank s balance sheet and its capital structure. 22. Step 2 is illustrated in Annex 2. Step 3: Map each of the components that are disclosed in Step 2 to the composition of capital disclosure templates 23. When reporting the disclosure template, described in Section 1 and Section 5, the bank is required to use the reference numbers/letters from Step 2 to show the source of every input. 24. For example, the composition of capital disclosure template includes the line goodwill net of related deferred tax liability. Next to the disclosure of this item in the definition of capital disclosure template the bank should put a d to illustrate how these components of the balance sheet under the regulatory scope of consolidation have been used to calculate this item in the disclosure template. Composition of capital disclosure requirements 5

12 Additional comments on the 3 step approach 25. The Basel Committee considered requiring banks to use a common template to disclose the reconciliation between banks balance sheets and their regulatory capital. However, it does not feel that this would be possible at this stage given that banks balance sheets are not reported in a common way across jurisdictions due to the application of different accounting standards. 26. Within a single jurisdiction, the use of a common template may be possible. Therefore, the relevant authorities may design a common template that is consistent with the 3 step approach set out above and require banks use this in order to achieve greater consistency in the way the 3 step approach is implemented within their jurisdiction. Section 3: Main features template 27. Basel III requires banks to disclose a description of the main features of regulatory capital instruments issued. While banks will also be required to make available the full terms and conditions of their regulatory capital instruments (see section 4), the length of these documents makes the extraction of the key features a burdensome task. The issuing bank is better placed to undertake this task than market participants and supervisors that want an overview of the capital structure of the bank. 28. Basel II Pillar 3 guidance already includes a requirement that banks provide qualitative disclosure that sets out Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of innovative, complex or hybrid capital instruments. However, the Basel Committee has found that this Basel II requirement is not met in a consistent way by banks. The lack of consistency in both the level of detail provided and the format of the disclosure makes the analysis and monitoring of this information difficult. 29. To ensure that banks meet the Basel III requirement to disclose the main features of regulatory capital instruments in a consistent and comparable way, banks are required to complete a main features template. This template represents the minimum level of summary disclosure that banks are required to report in respect of each regulatory capital instrument issued. The template is set out in Annex 3 of this report, along with a description of each of the items to be reported. 30. Some key points to note about the template are: It has been designed to be completed by banks from when the Basel III framework comes into effect on 1 January It therefore also includes disclosure relating to instruments that are subject to the transitional arrangements. Banks are required to report each regulatory capital instrument, including common shares, in a separate column of the template, such that the completed template would provide a main features report that summarises all of the regulatory capital instruments of the banking group. The list of main features represents a minimum level of required summary disclosure. In implementing this minimum requirement, each Basel Committee member authority is encouraged to add to this list if there are features that it is important to disclose in the context of the banks they supervise. Banks are required to keep the completed main features report up-to-date, such that the report is updated and made publicly available whenever a bank issues or repays 6 Composition of capital disclosure requirements

13 a capital instrument and whenever there is a redemption, conversion/write-down or other material change in the nature of an existing capital instrument. Given that the template includes information on the amount recognised in regulatory capital at the latest reporting date, the main features report should either be included in the bank s published financial reports or, at a minimum, these financial reports must provide a direct link to where the report can be found on the bank s website or publicly available regulatory reporting. Section 4: Other disclosure requirements 31. In addition to the disclosure requirements set out in Sections 1 to 3, and aside from the transitional disclosure requirements set out in Section 5, the Basel III rules text makes the following requirements in respect of the composition of capital: Non-regulatory ratios: banks which disclose ratios involving components of regulatory capital (eg Equity Tier 1, Core Tier 1 or Tangible Common Equity ratios) must accompany such disclosures with a comprehensive explanation of how these ratios are calculated. Full terms and conditions: banks are required to make available on their websites the full terms and conditions of all instruments included in regulatory capital. 32. The requirement for banks to make available the full terms and conditions of regulatory capital instruments on their websites will allow market participants and supervisors to investigate the specific features of individual capital instruments. An additional related requirement is that all banks must maintain a Regulatory Disclosures section of their websites, where all of the information relating to disclosure of regulatory capital is made available to market participants. In cases where disclosure requirements set out in this document are met via publication through publicly available regulatory reports, the regulatory disclosures section of the bank s website should provide specific links to the relevant regulatory reports that relate to the bank. This requirement stems from the supervisory experience that, in many cases, the benefit of Pillar 3 disclosures is severely diminished by the challenge of finding the disclosure in the first place. 33. Ideally much of the information that would be reported in the Regulatory Disclosures section of the website would also included in the published financial reports of the bank. The Basel Committee has agreed that, at minimum, the published financial reports must direct users to the relevant section of their websites where the full set of required regulatory disclosure is provided. Section 5: Template during the transitional period 34. The Basel III rules text states that: During the transition phase banks are required to disclose the specific components of capital, including capital instruments and regulatory adjustments that are benefiting from the transitional provisions. 35. The transitional arrangements for Basel III phase in the regulatory adjustments between 1 January 2014 and 1 January They require 20% of the adjustments to be made according to Basel III in 2014, with the residual subject to existing national treatment. In 2015 this increases to 40%, and so on, until the full amount of the Basel III adjustments are applied from 1 January Composition of capital disclosure requirements 7

14 36. These transitional arrangements create an additional layer of complexity in the definition of capital in the period between 1 January 2013 and 1 January 2018, especially due to the fact that existing national treatments of the residual regulatory adjustments vary considerably. This complexity suggests that there would be particular benefits in setting out detailed disclosure requirements during this period to ensure that banks do not adopt different approaches that make comparisons between them difficult. 37. This section of the composition of capital disclosure rules text aims to ensure that disclosure during the transitional period is consistent and comparable across banks in different jurisdictions. Banks will be required to use a modified version of the Post 1 January 2018 Disclosure Template, set out in Section 1, in a way that captures existing national treatments for the regulatory adjustments. The use of a modified version of the Post 1 January 2018 Disclosure Template, rather than the development of a completely separate set of reporting requirements, should help to reduce systems costs for banks. 4 The template is modified in just two ways: (1) an additional column indicates the amounts of the regulatory adjustments that will be subject to the existing national treatment; and (2) each jurisdiction will insert additional rows in four separate places to indicate where the adjustment amounts reported in the added column actually affect capital during the transition period. The modifications to the template are set out in Annex 4, along with some examples of how the template will work in practice. 38. Banks are required to use the template for all reporting periods on or after the implementation date set out in paragraph 5, and banks are required to report the template with the same frequency as the publication of their financial statements (typically quarterly or half yearly). 4 This section focuses on the phase-in of regulatory adjustments because the Post 1 January 2018 Disclosure Template set out in Annex 1 already addresses the phase-out of capital instruments. 8 Composition of capital disclosure requirements

15 Annex 1 Post 1 January 2018 Disclosure Template 39. Key points to note about the template set out in this Annex are: The template is designed to capture the capital positions of banks after the transition period for the phasing-in of deductions ends on 1 January 2018 (the template for banks to use to report their capital positions during this transitional phase is set out in Section 5). Certain rows are in italics. These rows will be deleted after all the ineligible capital instruments have been fully phased out (ie from 1 January 2022 onwards). The reconciliation requirements included in Section 2 result in the decomposition of certain regulatory adjustments. For example, the disclosure template below includes the adjustment Goodwill net of related tax liability. The requirements in Section 2 will lead to the disclosure of both the goodwill component and the related tax liability component of this regulatory adjustment. Regarding the shading: - Each dark grey row introduces a new section detailing a certain component of regulatory capital. - The light grey rows with no thick border represent the sum cells in the relevant section. - The light grey rows with a thick border show the main components of regulatory capital and the capital ratios. Also provided below is a table that sets out an explanation of each line of the template, with references to the appropriate paragraphs of the Basel III text. Basel III common disclosure template to be used from 1 January 2018 Common Equity Tier 1 capital: instruments and reserves Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus 1 related stock surplus 2 Retained earnings 3 Accumulated other comprehensive income (and other reserves) 4 Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies) Common share capital issued by subsidiaries and held by third parties (amount allowed in group 5 CET1) 6 Common Equity Tier 1 capital before regulatory adjustments Common Equity Tier 1 capital: regulatory adjustments 7 Prudential valuation adjustments 8 Goodwill (net of related tax liability) 9 Other intangibles other than mortgage-servicing rights (net of related tax liability) Deferred tax assets that rely on future profitability excluding those arising from temporary differences 10 (net of related tax liability) 11 Cash-flow hedge reserve 12 Shortfall of provisions to expected losses 13 Securitisation gain on sale (as set out in paragraph 562 of Basel II framework) 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Defined-benefit pension fund net assets 16 Investments in own shares (if not already netted off paid-in capital on reported balance sheet) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of Composition of capital disclosure requirements 9

16 regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) Significant investments in the common stock of banking, financial and insurance entities that are 19 outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) 20 Mortgage servicing rights (amount above 10% threshold) 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) 22 Amount exceeding the 15% threshold 23 of which: significant investments in the common stock of financials 24 of which: mortgage servicing rights 25 of which: deferred tax assets arising from temporary differences 26 National specific regulatory adjustments 27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 28 Total regulatory adjustments to Common equity Tier 1 29 Common Equity Tier 1 capital (CET1) Additional Tier 1 capital: instruments 30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus 31 of which: classified as equity under applicable accounting standards 32 of which: classified as liabilities under applicable accounting standards 33 Directly issued capital instruments subject to phase out from Additional Tier 1 34 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group AT1) 35 of which: instruments issued by subsidiaries subject to phase out 36 Additional Tier 1 capital before regulatory adjustments Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of 39 regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) 40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 41 National specific regulatory adjustments 42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Total regulatory adjustments to Additional Tier 1 capital 44 Additional Tier 1 capital (AT1) 45 Tier 1 capital (T1 = CET1 + AT1) Tier 2 capital: instruments and provisions 46 Directly issued qualifying Tier 2 instruments plus related stock surplus 47 Directly issued capital instruments subject to phase out from Tier 2 48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) 49 of which: instruments issued by subsidiaries subject to phase out 50 Provisions 51 Tier 2 capital before regulatory adjustments Tier 2 capital: regulatory adjustments 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of 54 regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) 55 Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 56 National specific regulatory adjustments 57 Total regulatory adjustments to Tier 2 capital 58 Tier 2 capital (T2) 59 Total capital (TC = T1 + T2) 60 Total risk weighted assets Capital ratios and buffers 61 Common Equity Tier 1 (as a percentage of risk weighted assets) 10 Composition of capital disclosure requirements

17 62 Tier 1 (as a percentage of risk weighted assets) 63 Total capital (as a percentage of risk weighted assets) 64 Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk weighted assets) 65 of which: capital conservation buffer requirement 66 of which: bank specific countercyclical buffer requirement 67 of which: G-SIB buffer requirement 68 Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted assets) National minima (if different from Basel 3) 69 National Common Equity Tier 1 minimum ratio (if different from Basel 3 minimum) 70 National Tier 1 minimum ratio (if different from Basel 3 minimum) 71 National total capital minimum ratio (if different from Basel 3 minimum) Amounts below the thresholds for deduction (before risk weighting) 72 Non-significant investments in the capital of other financials 73 Significant investments in the common stock of financials 74 Mortgage servicing rights (net of related tax liability) 75 Deferred tax assets arising from temporary differences (net of related tax liability) Applicable caps on the inclusion of provisions in Tier 2 76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap) 77 Cap on inclusion of provisions in Tier 2 under standardised approach 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022) 80 Current cap on CET1 instruments subject to phase out arrangements 81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) 82 Current cap on AT1 instruments subject to phase out arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) 84 Current cap on T2 instruments subject to phase out arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) 40. Set out in the following table is an explanation of each row of the template above. Regarding the regulatory adjustments banks are required to report deductions from capital as positive numbers and additions to capital as negative numbers. For example, goodwill (row 8) should be reported as a positive number, as should gains due to the change in the own credit risk of the bank (row 14). However, losses due to the change in the own credit risk of the bank should be reported as a negative number as these are added back in the calculation of Common Equity Tier 1. Row number 1 2 Explanation of each row of the common disclosure template Explanation Instruments issued by the parent company of the reporting group that meet all of the CET1 entry criteria set out in Paragraph 53 of Basel III. This should be equal to the sum of common stock (and related surplus only) and other instruments for non joint stock companies, both of which must meet the common stock criteria. This should be net of treasury stock and other investments in own shares to the extent that these are already derecognised on the balance sheet under the relevant accounting standards. Other paid-in capital elements must be excluded. All minority interest must be excluded. Retained earnings, prior to all regulatory adjustments. In accordance with paragraph 52 of Basel III, this row should include interim profit and loss that has met any audit, verification or review procedures that the supervisory authority has put in place. Dividends are to be removed in accordance with the applicable accounting standards, ie they should be removed from this row when they are removed from the balance sheet of the bank. 3 Accumulated other comprehensive income and other disclosed reserves, prior to all regulatory adjustments. Directly issued capital instruments subject to phase-out from CET1 in accordance with the requirements of 4 paragraph 95 of Basel III. This is only applicable to non-joint stock companies. Banks structured as joint-stock companies must report zero in this row. 5 Common share capital issued by subsidiaries and held by third parties. Only the amount that is eligible for Composition of capital disclosure requirements 11

18 inclusion in group CET1 should be reported here, as determined by the application of paragraph 62 of Basel III (see Annex 3 of Basel III for example calculation). 6 Sum of rows 1 to 5. Prudential valuation adjustments according to the requirements of paragraphs 698 to 701 of Basel II 7 (comprehensive version, June 2006), taking into account the guidance set out in Supervisory guidance for assessing banks financial instrument fair value practices, April 2009 (in particular Principle 10) 8 Goodwill net of related tax liability, as set out in paragraphs 67 to 68 of Basel III. Other intangibles other than mortgage-servicing rights (net of related tax liability), as set out in paragraph 67 9 to 68 of Basel III. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of 10 related tax liability), as set out in paragraph 69 of Basel III. 11 The element of the cash-flow hedge reserve described in paragraphs 71 and 72 of Basel III. 12 Shortfall of provisions to expected losses as described in paragraph 73 of Basel III. 13 Securitisation gain on sale (as set out in paragraph 562 of Basel II framework) Gains and losses due to changes in own credit risk on fair valued liabilities, as described in paragraph 75 of 14 Basel III. Defined-benefit pension fund net assets, the amount to be deducted as set out in paragraphs 76 and 77 of 15 Basel III. Investments in own shares (if not already netted off paid-in capital on reported balance sheet), as set out in 16 paragraph 78 of Basel III. 17 Reciprocal cross-holdings in common equity, as set out in paragraph 79 of Basel III. Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory 18 consolidation where the bank does not own more than 10% of the issued share capital (amount above 10% threshold), amount to be deducted from CET1 in accordance with paragraphs 80 to 83 of the Basel III. Significant investments in the common stock of banking, financial and insurance entities that are outside the 19 scope of regulatory consolidation (amount above 10% threshold), amount to be deducted from CET1 in accordance with paragraphs 84 to 88 of Basel III. Mortgage servicing rights (amount above 10% threshold), amount to be deducted from CET1 in accordance 20 with paragraphs 87 to 88 of Basel III. Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax 21 liability), amount to be deducted from CET1 in accordance with paragraphs 87 to 88 of Basel III. Total amount by which the 3 threshold items exceed the 15% threshold, excluding amounts reported in rows to 21, calculated in accordance with paragraphs 87 and 88 of Basel III. 23 The amount reported in row 22 that relates to significant investments in the common stock of financials 24 The amount reported in row 22 that relates to mortgage servicing rights 25 The amount reported in row 22 that relates to deferred tax assets arising from temporary differences Any national specific regulatory adjustments that national authorities required to be applied to CET1 in 26 addition to the Basel III minimum set of adjustments. Guidance should be sought from national supervisors. Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 to cover 27 deductions. If the amount reported in row 43 exceeds the amount reported in row 36 the excess is to be reported here. Total regulatory adjustments to Common equity Tier 1, to be calculated as the sum of rows 7 to 22 plus rows and Common Equity Tier 1 capital (CET1), to be calculated as row 6 minus row 28. Instruments issued by the parent company of the reporting group that meet all of the AT1 entry criteria set out in paragraph 55 of Basel III and any related stock surplus as set out in paragraph 56 of Basel III. All 30 instruments issued by subsidiaries of the consolidated group should be excluded from this row. This row may include Additional Tier 1 capital issued by an SPV of the parent company only if it meets the requirements set out in paragraph 65 of Basel III. 31 The amount in row 30 classified as equity under applicable accounting standards. 32 The amount in row 30 classified as liabilities under applicable accounting standards. Directly issued capital instruments subject to phase out from Additional Tier 1 in accordance with the 33 requirements of paragraph 94 (g) of Basel III. Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by 34 third parties, the amount allowed in group AT1 in accordance with paragraph 63 of Basel III (see Annex 3 of Basel III for example calculation). The amount reported in row 34 that relates to instruments subject to phase out from AT1 in accordance with 35 the requirements of paragraph 94(g) of Basel III. 36 The sum of rows 30, 33 and 34. Investments in own Additional Tier 1 instruments, amount to be deducted from AT1 in accordance with 37 paragraph 78 of Basel III. Reciprocal cross-holdings in Additional Tier 1 instruments, amount to be deducted from AT1 in accordance 38 with paragraph 79 of Basel III. Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation where the bank does not own more than 10% of the issued common share capital of the entity 39 (net of eligible short positions), amount to be deducted from AT1 in accordance with paragraphs 80 to 83 of the Basel III. Significant investments in the capital of banking, financial and insurance entities that are outside the scope of 40 regulatory consolidation (net of eligible short positions), amount to be deducted from AT1 in accordance with paragraphs 84 to 85 of Basel III. Any national specific regulatory adjustments that national authorities require to be applied to AT1 in addition to 41 the Basel III minimum set of adjustments. Guidance should be sought from national supervisors. 42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions. If the 12 Composition of capital disclosure requirements

19 amount reported in row 57 exceeds the amount reported in row 51 the excess is to be reported here. 43 The sum of rows 37 to Additional Tier 1 capital, to be calculated as row 36 minus row Tier 1 capital, to be calculated as row 29 plus row 44. Instruments issued by the parent company of the reporting group that meet all of the Tier 2 entry criteria set out in paragraph 58 of Basel III and any related stock surplus as set out in paragraph 59 of Basel III. All 46 instruments issued of subsidiaries of the consolidated group should be excluded from this row. This row may include Tier 2 capital issued by an SPV of the parent company only if it meets the requirements set out in paragraph 65 of Basel III. 47 Directly issued capital instruments subject to phase out from Tier 2 in accordance with the requirements of paragraph 94 (g) of Basel III. 48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 32) issued by subsidiaries and held by third parties (amount allowed in group Tier 2), in accordance with paragraph 64 of Basel III. 49 The amount reported in row 48 that relates to instruments subject to phase out from T2 in accordance with the requirements of paragraph 94(g) of Basel III. 50 Provisions included in Tier 2, calculated in accordance with paragraphs 60 and 61 of Basel III. 51 The sum of rows 46 to 48 and row Investments in own Tier 2 instruments, amount to be deducted from Tier 2 in accordance with paragraph 78 of Basel III. 53 Reciprocal cross-holdings in Tier 2 instruments, amount to be deducted from Tier 2 in accordance with paragraph 79 of Basel III. Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory 54 consolidation where the bank does not own more than 10% of the issued common share capital of the entity (net of eligible short positions), amount to be deducted from Tier 2 in accordance with paragraphs 80 to 83 of the Basel III. Significant investments in the capital of banking, financial and insurance entities that are outside the scope of 55 regulatory consolidation (net of eligible short positions), amount to be deducted from Tier 2 in accordance with paragraphs 84 to 85 of Basel III. 56 Any national specific regulatory adjustments that national authorities require to be applied to Tier 2 in addition to the Basel III minimum set of adjustments. Guidance should be sought from national supervisors. 57 The sum of rows 52 to Tier 2 capital, to be calculated as row 51 minus row Total capital, to be calculated as row 45 plus row Total risk weighted assets of the reporting group. 61 Common Equity Tier 1 (as a percentage of risk weighted assets), to be calculated as row 29 divided by row 60 (expressed as a percentage). 62 Tier 1 ratio (as a percentage of risk weighted assets), to be calculated as row 45 divided by row 60 (expressed as a percentage). 63 Total capital ratio (as a percentage of risk weighted assets), to be calculated as row 59 divided by row 60 (expressed as a percentage). Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk weighted assets). To be calculated as 4.5% plus 2.5% plus the bank specific countercyclical buffer 64 requirement calculated in accordance with paragraphs 142 to 145 of Basel III plus the bank G-SIB requirement (where applicable) as set out in Global systemically important banks: assessment methodology and the additional loss absorbency requirement: Rules text (November 2011). This row will show the CET1 ratio below which the bank will become subject to constraints on distributions. 65 The amount in row 64 (expressed as a percentage of risk weighed assets) that relates to the capital conservation buffer), ie banks will report 2.5% here. 66 The amount in row 64 (expressed as a percentage of risk weighed assets) that relates to the bank specific countercyclical buffer requirement. 67 The amount in row 64 (expressed as a percentage of risk weighed assets) that relates to the bank s G-SIB requirement. Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted assets). To be calculated 68 as the CET1 ratio of the bank, less any common equity used to meet the bank s Tier 1 and Total capital requirements. 69 National Common Equity Tier 1 minimum ratio (if different from Basel 3 minimum). Guidance should be sought from national supervisors. 70 National Tier 1 minimum ratio (if different from Basel 3 minimum). Guidance should be sought from national supervisors. 71 National total capital minimum ratio (if different from Basel 3 minimum). Guidance should be sought from national supervisors. 72 Non-significant investments in the capital of other financials, the total amount of such holdings that are not reported in row 18, row 39 and row Significant investments in the common stock of financials, the total amount of such holdings that are not reported in row 19 and row Mortgage servicing rights, the total amount of such holdings that are not reported in row 20 and row Deferred tax assets arising from temporary differences, the total amount of such holdings that are not reported in row 21 and row Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach, calculated in accordance paragraph 60 of Basel III, prior to the application of the cap. 77 Cap on inclusion of provisions in Tier 2 under standardised approach, calculated in accordance paragraph 60 of Basel III. 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach, Composition of capital disclosure requirements 13

20 calculated in accordance paragraph 61 of Basel III, prior to the application of the cap. 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach, calculated in accordance paragraph 61 of Basel III. 80 Current cap on CET1 instruments subject to phase out arrangements, see paragraph 95 of Basel III. 81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities), see paragraph 95 of Basel III. 82 Current cap on AT1 instruments subject to phase out arrangements, see paragraph 94(g) of Basel III. 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities), see paragraph 94(g) of Basel III. 84 Current cap on T2 instruments subject to phase out arrangements, see paragraph 94(g) of Basel III. 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities), see paragraph 94(g) of Basel III. 41. In general, to ensure that the common templates remain comparable across jurisdictions there should be no adjustments to the version banks use to disclose their regulatory capital position. However, the following exceptions apply to take account of language differences and to reduce the reporting of unnecessary information: The common template and explanatory table above can be translated by the relevant national authorities into the relevant national language(s) that implement the Basel standards. The translated version of the template will retain all of the rows included the template above. Regarding the explanatory table, the national version can reference the national rules that implement the relevant sections of Basel III. Banks are not permitted to add, delete or change the definitions of any rows from the common reporting template implemented in their jurisdiction. This will prevent a divergence of templates that could undermine the objectives of consistency and comparability. This national version of the template will retain the same row numbering used in the first column of the template above, such that market participants can easily map the national templates to the common version above. However, the common template includes certain rows that reference national specific regulatory adjustments (row 26, 41, and 56). The relevant national authority should insert rows after each of these to provide rows for banks to disclose each of the relevant national specific adjustments (with the totals reported in rows 26, 41 and 56). The insertion of any rows must leave the numbering of the remaining rows unchanged, eg rows detailing national specific regulatory adjustments to common equity Tier 1 could be labelled Row 26a, Row 26b etc, to ensure that the subsequent row numbers are not affected. In cases where the national implementation of Basel III applies a more conservative definition of an element listed in the template above, national authorities may choose between one of two approaches: - Approach 1: in the national version of the template maintain the same definitions of all rows as set out in the template above, and require banks to report the impact of the more conservative national definition in the designated rows for national specific adjustments (ie row 26, row 41, row 56). - Approach 2: in the national version of the template use the definitions of elements as implemented in that jurisdiction, clearly labelling them as being different from the Basel III minimum definition, and require banks to separately disclose the impact of each of these different definitions in the notes to the template. The aim of both approaches is to provide all the information necessary to enable market participants to calculate the capital of banks on a common basis. 14 Composition of capital disclosure requirements